401(k) Plans Expand Features, Lower Fees as Employers Refine Retirement Benefits

Workers are increasingly saving for retirement through 401(k) plans that are more automated, more generous and, in many cases, less expensive than in the past, according to a new Investment Company Institute industry report examining tens of thousands of employer-sponsored retirement plans.

The report analyzed data from more than 53,000 large private sector plans and found that employers are steadily refining the structure of 401(k)s—expanding automatic enrollment, offering employer contributions in most plans and broadening investment options—while overall plan costs have declined over the past decade.

One of the most notable trends is the growing use of automatic enrollment. More than half of plans with at least $50 million in assets reported using automatic enrollment, according to the report, which analyzed data through the end of 2023, and the share rose to more than 60% of plans with assets exceeding $1 billion.

“American companies are empowering their workers to save for retirement with employer contributions, diverse investment options, and falling plan fees,” said Shelly Antoniewicz, ICI’s chief economist, in a statement. “401(k) plans are crucial for private-sector workers’ retirement security, with about 70 million active participants and millions of retirees benefiting.”

Researchers reported that auto-enrollment has helped increase plan participation rates by removing the friction that often discouraged workers from signing up for retirement savings plans on their own.

Employer contributions also remain a defining feature of most plans. In 2023, 91% of large 401(k) plans included employer contributions, covering 94% of participants. 

Those contributions can take several forms, though the most common structure remains a simple matching formula—for example, matching a percentage of employee contributions up to a set portion of salary. Employer contributions accounted for roughly 35% of all contributions flowing into large 401(k) plans in 2023, according to the report.

The study also found that many plans allow workers to borrow from their retirement accounts, a feature that remains widespread among large plans.

Employers have also broadened the investment choices available to workers. On average, large plans offered about 29 investment options in 2023, including equity funds, bond funds and target-date funds designed to adjust investment risk as participants approach retirement. 

Target-date funds, in particular, the research found, have surged in popularity: About 90% of large plans offered them in 2023, up sharply from roughly one-third of plans in 2006. 

Meanwhile, index funds—typically lower-cost investment options—have come to represent nearly half of assets in 401(k) plans, reflecting a broader shift toward passive investing in retirement accounts. 

Costs associated with running the plans have also declined. The report estimated the average total cost of a 401(k) plan fell to 0.74% of assets in 2023, down from 1.02% in 2009, reflecting competition among providers and the increased use of lower-cost investment products.

Several of the trends ICI identified correspond to passage of the Pension Protection Act of 2006, which increased fiduciary duties under the Employee Retirement Income Security Act, allowed automatic enrollment and enabled fiduciaries to designate an investment—often a target-date fund series—as the plan’s qualified default investment alternative.

Researchers say the shift toward larger plans, automated enrollment and cheaper investment options suggests that employers are adapting retirement benefits to improve participation and to reduce barriers to long-term savings.

“The measure of total plan costs has fallen significantly in the decade-plus that we’ve been tracking it using MarketPro Retirement, powered by Brightscope,” said Brooks Herman, managing director of ISS Market Intelligence, who assisted with the report. “Participants are saving money on plan costs and investment options. This is good news for American retirement savers.”

ISS Market Intelligence, like PLANSPONSOR, is owned by ISS STOXX.